Guide: 8 Strategies for Reducing Workers’ Compensation Total Cost of Risk
Workplace accidents happen. And while an employer’s first concern will always be the health and wellbeing of employees, the effects of an accident on the business must still be considered. Complex and high exposure workers’ compensation claims can be a significant burden on an organization’s fiscal wellbeing by driving up both direct and indirect costs, creating unnecessary administrative burdens, and laying the foundation for further claim development.
Here are eight strategies employers should consider to help reduce the total cost of workers’ compensation claims.
Strategy #1: Adopt an Advocacy-Based Model for Your Workers’ Compensation Program
Actively disengaged employees can contribute disproportionate costs to an organization’s bottom line. This tends to be especially true when a disgruntled or unsatisfied employee enters the world of workers’ compensation. To change the way injured workers perceive their company/claims administrator and avoid further adverse claim development, employers should consider adopting an advocacy-based model.
The 5 Key Pillars of an Advocacy-Based Model in Workers’ Compensation
- The health and safety of employees is an absolute priority.
- A safe work environment requires a team effort to which everyone contributes.
- Work injuries are managed with an employee-centric focus which fosters compassion and empathy.
- Injuries are reported immediately and each incident is assessed to continuously improve the culture of safety.
- Returning an injured employee to work in a transitional duty manner is essential to the employee’s recovery, health and wellbeing.
By implementing the five pillars of an advocacy-based model, along with proper fact-finding and analysis, employers can eliminate the hazard of making assumptions such as:
- The injury is fraudulent or purposefully staged
- The employee is malingering or delaying their disability
- The employee is “gaming the system” or is skilled at navigating the system
Assumptions such as these can prompt suspicion and, subsequently, detrimental behavior. For instance, immediately assuming that an injury is “fraudulent” and confronting an employee following the report of a work-related accident can not only damage the relationship your organization has with an employee, but also greatly raises the likelihood that that employee will become fearful of reprisal and retain counsel to preserve their rights when they do have an injury or illness.
Implementing an objective process as an employer is a key foundational step in effectively managing pre- and post-loss objectives while also building a culture of safety and oversight.
Strategy #2: Invest in the Development of an Effective Disability Management Program
A well-designed and properly executed return-to-work (RTW) program addresses workers’ compensation, while also coordinating with federal laws and regulations – such as the Americans with Disabilities Act (ADA), Family and Medical Leave Act (FMLA), and short-term disability (STD) – in a consistent and compliant manner. Additionally, physical job demands should be defined and objectively measured to establish accurate and actionable standards in accordance with the ADA.
A properly executed RTW program starts at the time of the reported employee event and guides the employer team through a framed communication process among key stakeholders, which ultimately can lead to improved coordination, lower costs and increased compliance.
Employer Improvement Investments to Consider
Physical Demands Analyses (PDAs) are documents that define and objectively quantify key physical tasks and essential job functions. PDAs are foundational to outline the physical demand requirements for injury risk reduction initiatives and support the return-to-work and stay at work process, whether through temporary transitional duty or the ADA interactive process navigating potential reasonable accommodations.
PDAs capture the physical components of a specific job position and typically include an outline of the measurable physical demands, key equipment used, and photos of tasks being performed. These documents build a foundation which can be used for multiple applications including:
- Pre-injury targeted risk reduction initiatives
- Post-injury incident and root cause analysis
- Targeted work hardening, occupational and physical therapy modalities
- Identification of temporary transitional duty task assignments
- ADA application through measured essential functions
- Applicant screening and post-offer employment testing measurements
- New-hire training and onboarding
PDAs can be created for any in-scope position and are often applied to positions that drive frequency and severity. Using PDAs for safety management, injury management, risk reduction strategies and return-to-work efforts can help improve outcomes and support initiatives that reduce the total cost of risk.
Another essential investment is a properly designed temporary transitional duty and return-to-work program. Depending on the size and structure of an organization, there may be many different functional roles that overlap when an employee is absent from work or when the return-to-work process is being coordinated. Focus should be placed on creating a management framework that is consistent, compliant and administered by an integrated team with defined connection points.
The “post-injury team “should be comprised of representatives with responsibilities in, among others, Safety, Claims, Risk Management, Human Resources, Health and Benefits, and Legal. Employers that manage obligations without an integrated team often are vulnerable to missed coordination steps, increased loss costs and consequential legal action.
Employers should also create a consolidated or integrated transitional duty program (as opposed to multiple, separate disparate programs) to manage employee absences, regardless of the cause. A single, well-structured transitional duty program that manages the continuum of absence should be aligned to coordinate a compliant process.
Carrier/Claims Administrator Investments to Consider
In addition to the “post-injury team,” vendors – such as third-party claim administrators or carriers, medical providers, vocational experts and legal panels – need to work effectively in their roles to help mitigate exposures and support the continuum of the targeted objectives.
Offices administering workers’ compensation benefits should ensure that adjusters have the skills, abilities, tools and equipment for the job. While compliance and legal training is required for adjuster licensing and certification, education on the medical issues associated with industrial injuries is often not incorporated into the mandatory training requirements. Adjusters should have a solid foundation in basic medical terminology, anatomy, physiology, and common injuries and illnesses in an industrial setting; otherwise, they are reliant upon other people and systems to bridge the gap in their understanding of the medical cost drivers on a claim.
It is not cost-effective to assign a medical professional to every open claim. Instead, Risk Management Information System (RMIS) triggers and alerts can be set to identify claims that meet the criteria for assigning a nurse case manager and the adjuster is notified to make a referral. The standard triggers used by the industry are generally based on length or extent of disability with a primary focus of facilitating early return-to-work activities. The decision to assign a medical professional on a “disability” model may be too late to reverse a compensability decision, rescind approval of invasive procedures or prevent an extended period of disability. Training adjusters on how to quickly recognize when the recovery process is delayed or not effective, or when a condition or treatment plan is inconsistent with the other facts of the injury, will improve response times for deploying medical and legal methodologies to control costs on a claim.
In addition to training, proper tools and resources are another investment that a claims organization can make to assist adjusters in managing disability and medical services. Several companies provide online medical and disability decision-making tools that an adjuster can leverage to research a claimed condition, treatment protocols, diagnostic criteria and return-to-work timeframes. Such information can give an adjuster a starting point for determining an appropriate treatment plan, and when to seek another opinion. Claims organizations should identify a supervisor to ensure these tools are being implemented and properly aligned.
Strategy #3: Facilitate Accurate Investigations of Workplace Injuries
Employers should facilitate accurate and thorough investigations of all workplace injuries and illnesses. At the time of the reported incident, there is a foundational version of events which should be captured and clarified. The process can start with one version of the reported event and support multiple initiatives including the claim compensability process, and safety and prevention efforts.
Most adjuster-led investigations are done via telephone or e-mail, and questions/concerns often arise during or after a formal field investigation, statement or deposition. The foundation that an employer provides can support the claim investigation process and ultimately offer another layer of the version of events provided by the employee. It is important that the initial version of events reported by the employee to the employer also matches the version of events given to the medical provider and the claim handler, along with any identified witnesses. Compensability evaluations are made by physicians and adjusters who may not be fully aware of the true nature of the claimant’s job requirements and are therefore dependent on the claimant’s own description of the event.
Many companies use photo and video documentation which provides an accurate and detailed visual accounting of machinery and equipment, tools and state of cleanliness. This gives medical/legal reviewers and other key decision-makers clear and objective data from which they can postulate theories on causation, severity, and work ability. By customizing the employee incident form to match the operational exposures, tasks and equipment, a more concise fact-gathering effort can be performed with key data points to guide the process.
Often claims are assigned to a defense counsel who must spend significant time and resources gathering additional discovery and records to bolster defense strategies. The employer should therefore develop and implement post-accident response strategies and customized incident forms so that claims adjusters, defense counsel and medical providers are in possession of all the information necessary to make informed decisions and assign proper responsibility on the claim. Doing so also benefits risk control activities.
The employer can assist in:
- Developing custom incident forms populated with a series of checkboxes relevant to an employer’s operations, task and equipment.
- Reducing lag time by reporting any alleged claims promptly, ideally at the end of the employee’s shift.
- Identifying witnesses and providing contact information.
- Taking photos of the area and any resulting damage.
- Assisting the adjuster by scheduling an appointment for the claimant or witnesses to be interviewed by the adjuster. This is especially important for claimants working odd hours or working during the day when they will not be reachable at home.
- Providing important documents, including employer-based Frequently Asked Questions (FAQ) to the claimant to explain the process with key points of contact.
- Assisting when needed to obtain signed medical release authorizations to speed the claims process.
- Assuring the efficiency of the “fact-gathering” stage of a claim investigation by making sure that the right contacts are being made and the quality of the information is sufficient to make the correct compensability decisions on a claim.
Further, by identifying the proper individual to be a “Workers’ Compensation Coordinator” – someone to assist in new claim investigations and facilitate early return-to-work – employers can make a solid investment that may significantly reduce their total claim costs.
Strategy #4: Be Specific on the Medical Conditions Being Accepted on the Claim
Some jurisdictions do not require formal notices identifying the specific conditions being allowed on the claim, just the related body part(s). This can result in treatment for non-occupational conditions to sneak into a claim. The most effective remedy for what the industry calls “condition creep” is to be very precise in the specific physiological conditions being allowed on the claim, even if the state or legal jurisdiction does not require it.
Accepting body parts without identifying the specific condition creates an opportunity for cost leakage and the addition of unrelated conditions. Claim adjuster experience levels can vary and in one of the worst-case scenarios, the claim adjuster can stop asking important questions about the causal connection between a claimed condition and the original injury. By using specific ICD-9 codes adjusters are better able to use online tools and resources (such as ACOEM and MDGuidelines) to help ensure that only the related and necessary medical services are paid. This makes clear to the attending physician and ancillary medical providers what has or has not been approved on a claim.
Finally, this strategy provides a solid legal foundation to start from when requests for treatment involving pre-existing or co-morbid conditions are received.
Strategy #5: Ensure That the Claims Administrator Has an “80/20” Plan
A lot of damage can occur when a single standard claim administration model is applied to a claim with multiple layers of complexity. Adjusters must be trained and prepared to identify and respond appropriately to red flags, co-morbid and pre-existing conditions on a claim. The claims administrator should have quality assurance protocols in place to identify complex claims that present with areas of discrepancy, barriers to resolution, high potential exposure or erroneous elements which do not appear to be related.
The “80/20” Approach
The “80/20” rule describes how a small percentage of claims generate the majority of the financial exposures for an employer. An “80/20” approach identifies what Aon consultants call “Early Claim Indicators” (ECIs). ECIs are claim metrics that fall under specific categories of an early-warning system for claims with predefined profiles that are predisposed to develop into problematic claims. The “20% claims” have complex medical conditions and/or psychosocial factors that require an action plan different from the standard model. Several recommendations for investigating and managing these claims have been developed as part of the ECI solution and are outlined in earlier strategies in this guide. However, strategic problem-solving and case management skills are effective means of impacting the results of the identified 20%.
Most of the 20% of claims that drive the majority of the costs began as standard workers’ compensation claims. Over time, they developed into high potential exposure claims impacting severity metrics. This is primarily due to a failure to recognize early warning signs when the claim was initially reported. For example, a healthy individual with a soft tissue injury, such as a lumbar sprain/strain, should be resolved within six to eight weeks with minimal disability. Adjusters must quickly respond when medical services or disability extend beyond industry guidelines, such as the American College of Occupational and Environmental Medicine (ACOEM) and MDGuidelines. To keep claims from escalating into the top 20% of an organization’s claims costs, it is critical that the early warning signs be recognized, and appropriate intervention strategies be aligned to mitigate and manage the exposure.
By building a claim management program to address the complexities of claims with co-morbid conditions as described previously, and quickly applying those strategies to claims that are predisposed to adverse development, employers can help reduce the negative impact to the bottom line of their organization.
Strategy #6: Don’t Let Doctors be Lawyers and Lawyers be Doctors
Complex medical cases are rarely won in the workers’ compensation courts and if they are, they often come with a very large price tag. Administrative law judges are not medically trained and often err on the side of caution in favor of providing necessary medical care to a claimant. A favorable legal opinion may occur at some point in the process, but a significant amount of money may be needed to secure the opinion and then protect it on appeal. If additional attention is paid in developing a solid and factual foundation at the time of the reported event, the likelihood of an early resolution and proper mitigation to the claim is enhanced.
Physicians and medical providers are often asked to provide legal opinions that expand beyond the scope of their practice or experience. Doctors should not be put in a position to interpret or respond to the law. Caution should also be taken when asking a medical professional to be your investigator or vocational expert. Medical professionals are trained in patient advocacy and will likely err on the side of caution when it comes to important decisions involving patients. By staying focused on objective medical evidence, standards of care and industry guidelines (such as the AMA Guides or ACOEM), physicians can be held more accountable for their decisions.
Lawyers/Judges (and Adjusters)
The physiological changes related to aging and co-morbid conditions, and their impact on claims decisions are best addressed in the clinic, not the courthouse. Most state workers’ compensation dispute resolution systems are administrative, not civil. Just as you do not want doctors interpreting the law, neither do you want lawyers and judges diagnosing medical conditions and what caused them.
Strategy #7: Coordinate Claims Strategies for All Disability Programs
When an employer’s disability programs function independently or in a siloed manner, it can lead to a lack of coordination and communication among an employer’s management team and the various benefit administrators (i.e., workers’ compensation versus short-/long-term disability, as well as FMLA). Employers should closely manage all benefit programs simultaneously to support compliance and avoid gaps when managing overlapping benefits.
If a workers’ compensation claim is denied or has been resolved, the employer should redirect benefit coverage to group health and short-term disability options. If a claim is being challenged, benefits can be channeled to alternative options during the appeal process. If the denial is overturned and statutory benefit payments are ordered, an intervenor’s claim can potentially be filed by the claim administrator for benefit coordination recovery and an employee may submit out-of-pocket expenses for reconsideration.
It is not unusual for a disability claim to start as a workers’ compensation claim or a personal health condition, and then change to another type of claim resulting in various types of leakage. Higher cost medical services, such as surgeries, may be put on hold while a claim dispute is being adjudicated, leaving the claimant in a holding pattern for approval of medical services. As payment of workers’ compensation benefits are statutorily required, if a denial is overturned, the claimant may be doubly compensated by receiving retroactive workers’ compensation indemnity benefits after having received short- and/or long-term disability payments for the same period. In such a circumstance, the employer can reduce leakage by:
- Being familiar with the workers’ compensation jurisdictional considerations, which vary by state and benefit plan designs for short- and long-term disability plans.
- Establishing a benefit coordination process and defined elevations so that benefit decisions are properly coordinated to support identification and recovery of duplicate benefits and overpayments in accordance with statutory obligations.
- Conducting a “cost to benefit” analysis of each potential exposure when resolving disputes and negotiating settlements to address full, final and complete resolution across claims, benefit plans and employment obligations.
- Requiring each benefit administrator (WC, STD, LTD) to follow special handling instructions and align appropriate resources to reduce the duration of disability claims and align early interventions.
Strategy #8: Identify Key Performance Metrics and Measure Results
When implementing improvements related to workers’ compensation, the following metrics often present opportunities for economic and operational improvement during the process:
- Lag time
- Temporary Total Disability (TTD) days
- Average amount paid for claims with greater than seven days of TTD
- Litigation frequency and severity
- Percentage of medical paid to total paid
- Claim Closure rates
- Claim Conversion rates
- Americans’ with Disabilities Act compliance
- Family Medical Leave Act concurrent application
These metrics are not an exhaustive list and can overlap but are still important considerations to measure. The adage is true that “what gets measured, gets managed.” Identifying key performance metrics, establishing a baseline of performance and measuring on a consistent basis is key to determining the success of an organization’s improvement efforts.
There are many pillars and strategies for helping reduce workers’ compensation costs, which impact the total cost of risk (TCOR). Employers should start with a well-designed and properly executed management program that address workers’ compensation practices, as well as overlapping obligations. But improved communication with injured employees is key and effort should be placed on establishing a consistent best-practice framework for all stakeholders to follow. Focusing on active engagement over the long-term can help employers lower workers’ compensation costs and positively impact the organization’s TCOR.